Cost of debt
Cost of debt is what a company pays to borrow money, the interest rate on its borrowing. For valuation it is usually adjusted down to an after tax figure, the interest rate multiplied by one minus the tax rate, because interest payments reduce a company's taxable income. That adjustment matters: a company paying a 5% interest rate doesn't carry a full 5% cost, since the tax savings from deducting that interest lowers the burden.
Cost of debt is typically far lower than , since lenders are repaid before and take on less risk as a result. It's the second of the two inputs, alongside , that get blended into a company's overall .